PHILIPPINE Airlines (PAL) will spin off its three non-core units next month, after incurring losses during its past two fiscal years. In a statement, the country’s flag-carrier, which is observing its 69th year in 2010, said the spin-off forms part of the next phase of the company’s restructuring program. The fresh restructuring program will start on May 31.
The affected units are in-flight catering services, airport services (including ground handling, cargo terminal/cargo handling, and ramp handling) and call center reservations.
PAL said the spin-off is being pursued in accordance with labor laws and the collective bargaining agreement between the company and the Philippine Airlines Employees Association (PALEA).
The airline, however, assured its customers that the implementation of its restructuring will cause no disruption of its operations.
It added that all domestic and international flights are being operated according to published departure and arrival times.
”All PAL offices and facilities in the Philippines and overseas remain open to serve customers. And all accredited travel agents continue to sell and honor PAL tickets,” the carrier said.
PAL said it is constrained to pursue the restructuring plan due to several factors beyond its control that include, among others:
• unabated liberalization of the commercial aviation industry to the detriment of local players like PAL;
•the worldwide economic recession that led to a crippling slowdown in passenger traffic;
• record-high oil prices in 2008-2009 and the continuing increase in the price of aviation fuel, which accounts for nearly half of PAL’s operating expenses;
• the downgrade of the Philippine aviation sector to Category II by the United States, preventing PAL from using brand new long-range aircraft or increasing flights to the U.S.; and
• the subsequent blacklisting of Philippine carriers by the European Union, ruining the reputation of even those airlines with outstanding safety records like PAL.
“PAL did its best to adjust to the harsh operating environment. It implemented a series of cost-cutting initiatives, including a manpower rationalization program in September 2009 that affected more than 400 executives and administrative employees,” the company said, adding that it restructured its organization and spun-off its maintenance and engineering department to Lufthansa Technik Philippines in 2000.
Besides the series of cost-cutting initiatives, PAL said it approached several investors but none were interested. To prove its point, the carrier cited the 20 airlines that filed for bankruptcy last year.
“We approached government for help but it, too, was in dire financial straits,” PAL said. The company said
its financial situation continued to deteriorate, as it incurred over $350-million, or at least P15-billion in losses during the last two fiscal years.
Its equity also dropped precipitously to a little over $1.1-million as of February this year, the airline said.
PAL earlier reported a net loss of $54.1 million during the second quarter of its fiscal year ending March from $158.1 million in the same period last year. To stave off failure and protect company assets, PAL said it had to act quickly.
“Given this grim scenario, PAL has no choice but to restructure. It must also sell and/or cease operations of non-core businesses since no airline in Asia, or the world for that matter, continue to operate non-core businesses. Moreover, PAL has to meet its huge outstanding obligations as they fall due to prevent creditors from taking over the business,” the carrier said.
